SEGRO has posted a 6.1% rise in net asset value to 312p a share as it continues to reshape its portfolio and build critical mass in its target markets.
The REIT said improving investor appetite for industrial and logistics assets, combined with asset management initiatives, contributed to a 4.1% like-for-like growth in the value of its completed portfolio.
It added that almost all of this growth occurred in the second half of the year to the end of December.
SEGRO owns or manages 57m sq ft of space in £5.2bn of assets – its share of which totals £4.1bn – serving 1,250 customers from a range of industry sectors. Its properties are located around major conurbations and at key transportation hubs across eight European countries, principally in the UK, France, Germany and Poland.
During the year it added £29.6m of rent to its rent roll including £7.3m of prelets, as customer retention levels remained high at 69%.
Its weighted average lease length increased to 6.7 years from 6.4 years.
However, there was an increase in the group vacancy rate to 8.5% from 8.2% “due mainly to the impact of disposals”, but the result was “an improvement from the half-year position of 9.5%”.
Net rental income reduced by 12.3% due to disposals, the creation of its European Logistics Partnership (SELP) and the insolvency of German tenant Neckermann. SEGRO said this expected decline was mitigated by an increase in profits from joint ventures and a reduction in net finance costs and administrative expenses, leading to a 7.5% reduction in EPRA profit before tax.
The industrial specialist’s UK completed portfolio delivered a capital return of 7%, outperforming the IPD Quarterly UK Industrial index of 5.7% capital return.
This “reflected the quality and location of SEGRO’s assets and the ongoing benefits of the strategic portfolio reshaping programme, partly offset by 3.1% decline in value of continental European assets”.
Breaking down capital returns, it noted the strength in the UK and from core assets in Germany and central Europe, with weaker performance from non-core assets and properties in France and Benelux where economic growth continues to be subdued.
SEGRO completed £591m of disposals in the period at an average of 4.7% ahead of book value, while it invested £141m in warehouses in its core markets.
Some £108m of capital was spent on development projects with 15 projects completed and 85% let at year-end. The expected yield on cost was around 10%.
During the period SEGRO introduced third-party capital through its SELP joint venture with Canadian pension fund PSP Investments, providing capital for growth and enhancing its risk-adjusted returns on investment.
Since the year end SELP has exchanged contracts to purchase €472m of land and assets.
Updating on debt SEGRO said it had reduced group net borrowings by £631m through net disposals and the creation of SELP.
Its “look-through” LTV reduced to 42% from 51% a year earlier.
Chief executive David Sleath said: “The year 2013 has been a strong one for SEGRO. We have made significant strategic progress in terms of reshaping the portfolio, building critical mass in our target markets, reducing group net debt by 30% and introducing third-party capital through the creation of SELP.
“Our actions over the past two years have significantly improved the group’s property portfolio and financial position, and we have established a strong platform from which to deliver sustainable growth.
“The strategic portfolio reshaping programme will continue to have an earnings impact in 2014. However, we have started the year with good momentum from our acquisition, leasing and development programmes and we expect that the marked improvement in investor appetite for high-quality warehouse and logistics assets, which has driven significant capital value growth in the second half of 2013, will be sustained in 2014.”
bridget.oconnell@estatesgazette.com
